Obama’s energy rewrite caught out in report

US gas production on non-federal lands jumped 40 per cent to 24.2 billion cubic feet in the past five years, while on federal lands and offshore areas, such output fell 23 per cent to 4.25 bcf.
Photo: Eddie Seal

Barack Obama
’s frostiness towards oil and gas thawed when the boom in US production became undeniable. Then he started to take credit for it, and the industry cried foul. In the second presidential debate, Obama accused
Mitt Romney
of peddling untruths by saying he had sat on oil and gas drilling on federal land.

Romney might have asked the wrong question. But a report from the non-partisan Congressional Research Service shows that federal lands have played no part in America’s recent energy boom – quite the reverse.

We need to learn as much as we can about the origins of the US shale energy boom, which is re-aligning the global industrial landscape in America’s favour by luring investment and jobs from Europe, Asia – and quite plausibly Australia.

The realignment has started to overtake the globalisation of the 1990s and 2000s. German chemicals giant BASF told The Washington Post that it had invested $US5.7 billion in new plants in America since 2009 because that’s where its industrial customers are investing.

Australia’s resource riches do not make us immune. Cheap energy, cheap capital and the cheapest labour in the West are the reasons that GM and Ford are investing billions of dollars in the US, and not rushing to invest in Australia (or Europe).

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This process may have barely begun. The shale gale is barely half a decade old. Yet already America has eclipsed Russia to become the world’s largest natural gas producer, and the International Energy Agency predicts it will surpass Saudi Arabia as the world’s largest oil producer later this decade. UBS estimates the energy boom can add half a percentage point to US GDP growth for five years.

Where is it coming from? So far, entirely from non-federal – that is, state and private – lands. The CRS documents this in a report (‘U.S. Crude Oil and Natural Gas Production in Federal and Non-Federal Areas’) issued a month ago. The 1.1 million-barrel-a-day increase in US oil production between 2007 and 2012 comprises a 1.2 mbd increase on non-federal lands and a reduction of about 70,000 barrels a day on federal lands. Of course the post-Gulf oil spill moratorium played a role in this. Still, the amount of production on onshore federal lands is miniscule – just over 7 per cent of production on non-federal lands. As a result the federal lands share of total US oil production fell to 26 per cent in 2012 from 33 per cent in 2007.

The disparity is even more pronounced in gas, which has been produced from shale for longer than oil. Gas production on non-federal lands jumped 40 per cent to 24.2 billion cubic feet from 2007 to 2012. On federal lands and offshore areas, production fell 23 per cent to 4.25 bcf. As a result the federal share plunged from 27.8 per cent to 17.7 per cent.

There may be valid reasons for this.

Some federal lands – national parks, defense lands – may be unsuitable. Caution is called for after a huge oil spill. Yet there does seem to be validity to Romney’s charge.

The CRS finds the time to process drilling applications on federal lands blew out to 307 days in 2011, from 218 on 2006. By contrast, some states approved applications in as little as ten days.

The lesson from this for Australia is that government can have a positive, neutral or negative impact on energy policy.

From a distance it appears that energy policy in Australia has been preoccupied with setting up an unwieldy carbon in isolation from our main trading partners, and in fostering the development of giant liquefied natural gas projects, mostly offshore and mostly for export.

Progress in exploiting our rich resources of ‘unconventional’ gas – shale and coal seam – has been patchy, with the notable exception of Queensland, and the cost of domestic energy is rising. We used to be part of an Asia Pacific climate change grouping focused on technological solutions, which would have given us an earlier heads up on the potential of shale to boost the economy and cut carbon emissions.

That ended with the Rudd government in 2007. Shale has helped the US cut its emissions faster than any country. Perhaps we’ve been on the wrong track.